THIS is with reference to the letter `Banking affairs` (April 10), which rightly pointed out an abrupt increase in the overall advances portfolio of Pakistani banksfortheyearthatendedonDec31, 2024. The letter raised a valid question about the sudden increase in a short period of three months, and called for a formal inquiry.

The motive behind banks` decision to increase their advances portfolio was to meet the advance-to-deposit ratio (ADR) regulation imposed by the State Bank of Pakistan (SBP). The banks, already paying record taxes on their earnings, were left with two options. First, to shed their overall deposits; second, to increase their advances by extending credits to both privateand public-sector entities.

Some banks met the ADR condition by shedding deposits, but majority of the banks opted to move money towards commodity operations of the government, or extended credits to the financial sector for a period of three months. Interestingly,the latter was cash collateralised, and the proceeds were invested in government securities. Many of the banks were desperate to extend the credit even at rates lower than the base rate of SBP.

This was a clear case of window dressing, but, interestingly enough, the SBP, the apex regulator responsible for checking and blocking any such move by the banks for the purpose of transparency and correct financial reporting, knew all about what was going on. Unfortunate as it is, the story did not end here because the SBP in December 2024 withdrew the ADR condition and replaced it with an additional five per cent tax on the banks.

The SBP, the Federal Board of Revenue (FBR) and the Ministry of Finance should follow a more pragmatic approach towards the banks, and let them work freely in line with the overall economic conditions.

The government should stop milking the banks through unrealistic credit targets and exorbitant tax rates, and must bring down the cost of doing business.

Hassan Azam Shibbli Islamabad